Friday’s ETF To Watch: S&P Retail SPDR (XRT)

by on January 7, 2011 | ETFs Mentioned:

Today looks to be a very interesting day in the markets given the conflicting data over the health of the American economy as of late. Solid jobs reports on Wednesday in the private sector helped to boost securities although this was soon erased by lower-than-expected retail sales in yesterday’s session. This has left markets in a precariously uncertain position once again, putting extra focus on today’s jobs report.

Today’s December report from the Bureau of Labor Statistics is expected by economists to show a net gain of roughly 175,000 jobs in the month. However, analyst estimates very widely so it is not unreasonable to assume that the true figure will diverge significantly from the prediction. If the real number comes in as expected, it could help to push the unemployment rate down to 9.7% from its current 9.8% level further encouraging consumers to believe that a true recovery is brewing and that it may be time to go out and spend again [see ETF Plays For A Retail Recovery].

Thanks to the crucial nature of this report as well as recent weakness in same-store retail numbers, we look for State Street’s S&P Retail SPDR (XRT) to remain in focus for much of today’s trading session. The fund tracks the S&P Retail Select Industry Index represents the retail sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Retail Index is an equal weighted market cap benchmark that currently offers exposure to 65 companies in total, all of which will be highly in focus given the jobs report later today [see which stocks are in your ETFs with our free Stock Exposure Tool].

Thanks to the fund’s equal weighting strategy, it is heavily concentrated in mid and small cap companies which tend to be more volatile and more heavily impacted by U.S. events than some of their multinational retail peers such as Wal-Mart. Over the past 26 weeks the fund has surged higher by just under 30%, however, it has experienced a bit of weakness so far in 2011 losing 2.7% so far this year. Should employment numbers surprise on the upside it could help to ease these losses and return the fund to its profitable trend of 2010. If however, unemployment remains elevated and investors grow increasingly worried about the American consumer and their ability to spend, look for XRT and the rest of the Consumer Discretionary ETFdb Category to tumble in today’s session.

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Disclosure: No positions at time of writing.